By Deepta Bolaky
More easing policies hit the markets as the global pandemic create havoc in the financial markets. In a coordinated move, central banks are slashing interest rates to support their respective economies from a credit crunch and financial crisis.
On Sunday, the Federal Reserve cuts interest rates to zero in an emergency move. As more people are in quarantine and economic activity come to a halt, there are concerns of a steeper recession. In addition to the cut, the Fed also announced a $700 billion worth of quantitative easing (QE).
Early on Monday morning, the Reserve Bank of New Zealand cuts its Official Cash Rate (OCR) to a record low of 0.25% for a period of 12 months and is looking to tap into QE for the first time should further stimulus be required.
Investors are bracing up for another week of extreme volatility!
The attention on Monday immediately switches to other major central banks in following the steps of the Fed and the RBNZ. There are heightened expectations of a more coordinated global response from central banks and governments.
Is the RBA next? Investors will be on the look-out for more action from the RBA as the expectations for an emergency rate cut to 0.25% has increased sharply. The next board meeting is in April which might be too far away. Investors will expect action now given the current negative economic implications of the virus.
We expect this week economic data to provide more clues on the state of the global economy. However, any positive data may be overshadowed by the carnage in the financial markets. Investors are in a state of panic and encouraging economic releases might provide only momentary reassurance. They are more likely to monitor the actions of Regulators and Governments.
Market participants will monitor if measures being put in place will support but also help in the recovery of the global economy.
China’s Industrial Production and Retail Sales are scheduled to be released on Monday. Investors are expecting a contraction given that China has been hit the hardest so far by the impact of the virus.
As of writing, the focus is on the BOJ’s emergency meeting which will be held later today. Traders need to brace for possible big movements in the Yen crosses.
RBA Minutes will be among the first key economic release on Tuesday morning but it might probably be a non-mover as it will be viewed as outdated. The chaos in the markets and the Fed’s emergency rate cut last night is the game-changer for future moves of other central banks.
UK employment data will stand out. However, we do not expect January and February report to raise any alarming signals as those reports are unlikely going to be impacted by the virus. If there is any weakness, the Pound could face further weakness.
ZEW Surveys in the Eurozone area and Germany are expected to broadcast the disruptions caused by the virus. Europe is now the epicentre of the pandemic. More and more aggressive measures are being deployed by members of the bloc every day in an attempt to limit the spread. The shared currency could face more downside if the numbers are worse than initially forecasted.
The RBA’s Ellis speech will be closely watched for any clues on the next course of action. Other notable events will be the inflation data in the Eurozone and Canada following by Building Permits and Housing Starts in the US.
The NZ GDP figures will be the highlight. Even though investors are no longer waiting for the GDP data to gauge the size of the RBNZ’s rate cut following the emergency cut this morning, a worse-than-expected figure will add further pressure on the Kiwi.
Thursday and Friday
The Aussie jobs report, SNB Interest Rate Decision, Philadelphia Fed Manufacturing Survey will be the main releases on Thursday while the PBoC Interest Rate Decision and Canadian Retail Sales will stand out on Friday.
The week kicks off with emergency rate cuts and quantitative easing after the financial markets experienced its worst week since the global financial crisis. In such extremely volatile markets, we expect the focus to remain on regulators and governments to provide guidance and measures to support the global financial system.
By Deepta Bolaky
|Tuesday, 17 March 2020
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